10.13.2014

As economists and politicians heap pressure on global central banks to continue, and even escalate, their unusually loose monetary policies in order to spur global demand, the fear that these measures could provoke another market convulsion is spreading.

“A major lesson of the last crisis is that accommodative monetary policy contributed to financial excesses,” said Lucas Papademos, a former vice president of the European Central Bank. “We are pursuing a similar policy for good reason. But there are limits — if you do this for too long, risks in the financial markets will materialize.”

[...]

“What we see is extraordinary risk-taking in the financial markets while in the real economy risk-taking has taken a holiday,” said Claudio Borio, a senior economist at the Bank for International Settlements, a clearinghouse for global central banks.

10.01.2014

A year and a half ago, we posted He's dead, Jim, showing that the ratio of the stock market to the Federal Reserve's balance sheet had absolutely flatlined, meaning the correlation of stock prices to Dirty Fed money-printing was essentially perfect.

Now with the Fed promising to halt QE this month, we thought an update would be highly relevant.

The verdict?

Still dead! The stock market has flatlined down 75% from its 2000 peak in Fed balance sheet terms.

Does the impending end of QE mean the end of asset price appreciation? Would asset price stagnation or declines bring Janet back to the Ctrl+P button?